Size and Sectoral Specialisation : The Asymmetric Cross-Country Impacts of the 2008 Crisis & its Aftermath

Armstrong, Harvey and Read, Robert (2020) Size and Sectoral Specialisation : The Asymmetric Cross-Country Impacts of the 2008 Crisis & its Aftermath. Journal of International Development, 32 (6). pp. 891-921. ISSN 0954-1748

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Abstract

This paper analyses the cross-country impacts of the 2008 global financial crisis and the subsequent recovery process, with a specific focus on small economies. Key growth volatility variables highlight the critical exposure of small economies to the transmission of exogenous shocks owing to their high degrees of trade openness and inherent output and export specialisation, notably in financial services and tourism. These factors also constrain the mitigation of exogenous shocks giving rise to greater growth volatility. The paper demonstrates systematic asymmetries between countries with respect to the impact of the crisis and its persistence according to their size and patterns of sectoral specialisation. Small tourism-dependent economies and nonsovereign entities were particularly adversely affected although an offshore financial sector partly mitigated the impacts. The robustness of the findings is examined further in the appendix with regard to truncation problems arising from the use of international datasets.